WASHINGTON — Despite a term that has been marred by a severe financial crisis and his controversial response to it, Federal Reserve Board Chairman Ben Bernanke on Tuesday won renomination to another four years at the helm of the central bank.
"As an expert on the causes of the Great Depression, I'm sure Ben never imagined that he would be a part of a team responsible for preventing another," Obama said during his announcement Tuesday. "But because of his background, his temperament, his courage, and his creativity, that's exactly what he has helped to achieve. And that is why I am re-appointing him to another term as Chairman of the Federal Reserve."
Bernanke's current term is slated to expire in January and Obama's announcement gives the Senate Banking Committee several months to consider the nomination while providing financial markets with a sense of stability as the banking sector struggles to recover.
Senate Banking Committee Chairman Chris Dodd said reappointing Bernanke is "probably the right choice."
"Chairman Bernanke was too slow to act during the early stages of the financial crisis, but he ultimately demonstrated effective leadership and his reappointment sends the right signal to the markets," the Connecticut Democrat said in a statement. "There will be a thorough and comprehensive confirmation hearing. I still have serious concerns about the Federal Reserve's failure to protect consumers."
The Fed chief, who took over the central bank in 2006 after being nominated by President Bush, beat out potential successors including Federal Reserve Bank of San Francisco President Janet Yellen, former Fed vice-chair Alan Blinder and Lawrence Summers, Obama's closest economic adviser.
"The Federal Reserve, like other economic policymakers, has been challenged by the unprecedented events of the past few years," Bernanke said after the president spoke. "We have been bold or deliberate as circumstances demanded, but our objective remains constant: to restore a more stable economic and financial environment in which opportunity can flourish, and in which Americans' hard work and creativity can receive their proper rewards."
Bernanke faces multiple challenges during his second term, including rising unemployment and fears of inflation. But perhaps his top priority is to finish shepherding the financial industry through the current crisis. Though initial signs of improvement have emerged, banks continue to face danger in their exposure to commercial real estate and rising credit card defaults.
Meanwhile, financial institutions have shown no intent to dramatically ease their grip on credit and have done little to address the toxic assets that remain on their balance sheets.
Bernanke has won widespread praise for his response to the financial crisis. Dusting off the Fed's emergency powers for the first time in decades, Bernanke helped launch nearly a dozen programs aimed at providing liquidity to the industry through cash or Treasury auctions, purchases of commercial paper and aid to money market mutual funds.
The Fed's balance sheet has swelled to accommodate the central bank's role in the market, climbing from $834.6 billion when Bernanke took office to $2.1 trillion last week.
Bernanke also played a critical role in pushing the collapsing Bear Stearns Cos. into the arms of JP Morgan Chase & Co. in March 2008 and repeatedly rescuing insurance giant American International Group last fall. Perhaps his most dramatic role came when he sat beside then-Treasury Secretary Henry Paulson as the duo asked Congress for $700 billion to resuscitate the banking industry.
Though the implementation of the Troubled Asset Relief Program has been widely panned, Bernanke has argued that the financial sector and the broader economy would be much worse without it.
Despite the respect he has earned among many economists, he has taken painful stumbles, including repeated comments at the onset of the financial crisis that problems in the housing sector were "contained." He has also faced tough questions about his role in pushing Bank of America Corp. chief executive Ken Lewis to purchase Merrill Lynch despite concerns about rising losses at the failing investment bank.
On Capitol Hill, frustration and misunderstanding over the Fed's role has been intense at times. House Speaker Nancy Pelosi once remarked that she had no idea the Fed could spend money so freely.
Rep. Ron Paul, R-Texas, has introduced legislation that would open all of the Fed's activities, including its monetary policy deliberations, to review by the Government Accountability Office, a move Fed officials have strongly argued against.
Moving forward, Obama is counting on Bernanke to support the administration's efforts to reform financial services regulation.
"We need Ben to continue the work he's doing, and that is why I've said that we cannot go back to an economy based on overleveraged banks, inflated profits, and maxed-out credit cards," Obama said.
Bernanke has strongly made the case that systemically important firms should be more closely regulated and a resolution mechanism should be established to allow bulky institutions to fail. Obama's plan creates a resolution process and gives the Fed systemic risk powers.
Though he has not officially taken a position on the issue, the only hint of daylight between Obama and Bernanke is over how consumers should be protected. The administration is pushing for the creation of a separate consumer protection agency that would take those powers away from the banking regulators but Bernanke has noted problems with such an approach.
"There are some drawbacks," he said during a rare town hall meeting at the Federal Reserve Bank of Kansas City last month. "If the consumer protection agency has its own examination board and examiners going out to the banks, banks will have to see both safety and soundness examiners as well as the consumer protection agency examiners. There would be a duplication of efforts."